A Guide to Conservative Investing

by | May 18, 2023

There are many different ways to invest. Your investment strategy will depend on your wealth management goals and financial circumstances. Some individuals, such as older investors and retirees, may also be less comfortable with taking significant risk for one reason or another. If you are one of these people you may want to look at a more conservative investment strategy. 

Conservative investing is an approach that prioritizes protecting capital over generating high returns. It is a type of strategy that can provide peace of mind for investors who are risk-averse or close to retirement age. The following are some tips on how to invest conservatively.

Focus on low-risk investments

Conservative investors should prioritize low-risk investments such as bonds and cash. Bonds are debt securities that offer a fixed income over a specified period, while cash investments include savings accounts and money market funds. These types of investments typically provide a lower return but have a lower risk of losing money. Certificates of Deposits (CDs) may also be another option with minimal risk of loss to consider. A higher proportion of these low-risk investments will be used in your overall investment strategy.

Portfolio diversification

Diversification is a key element of conservative investing. It involves spreading your investments across different asset classes such as stocks, bonds, and cash. By diversifying, you can reduce the risk of losing all your money in one investment. However, it is important to realize that diversification does not guarantee profits or completely protect against all potential for losses.

Mutual funds and exchange-traded funds (ETFs)

Mutual funds and ETFs are investment vehicles that pool money from multiple investors to buy a diversified mix of assets. These funds offer a convenient way to access a diversified portfolio without having to pick individual securities, which can be time-consuming and tedious to research properly. They also provide the benefit of professional management and lower costs compared to buying individual securities.

Avoid high-risk investments

Conservative investors should stay away from high-risk investments such as penny stocks, commodities, and options trading. These types of investments can be volatile and may result in significant losses. Also, avoid other highly volatile types of assets, such as commodities, cryptocurrency, or investing in foreign currencies. These types of assets are usually better suited for experienced investors who can tolerate higher risk than your everyday investor just looking to build wealth and security for retirement and their family’s future. 

Set realistic expectations

Conservative investing typically provides a lower return compared to aggressive investing. Investors should set realistic expectations and not expect to get rich quick. You should focus on preserving capital rather than generating high returns when looking to implement a conservative and less-risky investment strategy. Try to look at investing with a more long-term perspective, as opposed to short-term, larger gains. 

Seek professional advice

Investing can be complex with many finding it an intimidating endeavor. This is why it may be a good idea to seek professional advice when making investment decisions. A financial advisor can help you create a conservative investment portfolio that aligns with your goals and risk tolerance. They can also provide guidance on the best investments for your situation.